California Could Punish Coverage Lapses

A large auto insurance company in California is pushing for an initiative to appear on the June 2010 ballot in that state. The proposed ballot initiative, called the Continuous Coverage Auto Insurance Discount Act, would require those who had auto coverage lapses to pay higher premiums once they resumed coverage. The proposed measure is being promoted by Mercury Insurance, a major provider of auto insurance in California.

Auto Insurance Discount Act Specifics

Under current auto insurance law in the state of California, drivers are eligible to receive a "continuous coverage" discount if they remain with the same insurance provider and keep their coverage up to date for a certain length of time with no interruptions. However, according to the advocacy group Californians for Fair Auto Insurance Rates (CAL-FAIR), this portion of current law has a flaw, in that drivers cannot keep this continuous coverage discount if they switch auto insurance providers [1]. The new proposed ballot initiative would correct this, modifying California's Proposition 103 to allow drivers to switch companies and maintain any discounts they have already earned for keeping coverage on their vehicles without any lapses.

According to proponents of the Continuous Coverage Auto Insurance Discount Act, passage of the initiative would benefit California drivers by giving them more flexibility in their auto insurance choices, and by promoting stiffer competition among the different auto coverage providers in the state. One possible outcome could be lower rates for insured drivers due to increased pressure among the various providers to reward those who keep up with their coverage through the years, and to retain customers who will have a greater ability to switch. They also argue that the initiative would encourage more drivers to carry and keep insurance on their vehicles, since it would be much easier to get a discount for continuous coverage. California is well-known as a state that has long struggled with a high uninsured driver rate, a problem which indirectly results in higher rates for those who do carry the insurance burden for the rest of the driving population in the way of uninsured driver coverage.

Not all Favor California Initiative

However, in spite of its positive title, the Continuous Coverage Auto Insurance Discount Act is not strictly an initiative to promote discount pricing for drivers. There is another large stipulation to the proposed act which modifies California's Proposition 103 in a completely opposite way. For this reason, some critics in the state of California are against the measure, citing among other things the fact that it is being touted by a major insurance company in the effort to get it on the June ballot.

A major component of the proposed act is a change in the state's Proposition 103 involving drivers who had previous lapses in auto coverage. Proposition 103 protects those drivers from suffering punitive damages when they purchase auto coverage following a lapse. Specific groups protected include those on active duty in the military who may have gone overseas for deployment and others who lived outside the country and returned. Under the provisions of the Continuous Coverage Auto Insurance Discount Act, auto insurance providers would be allowed to add a surcharge to rates calculated for drivers purchasing coverage after a lapse in insurance protection. The charges would even be applicable to those aforementioned groups who were not even in the country during the time of their coverage lapse, or drivers who had no car at all to insure for a period of time. Some consumer interest groups are concerned that passage of this act could punish drivers for, among other things, service to their country or economic struggles causing them to forego auto ownership.

Unlike proponents of the Continuous Coverage Auto Insurance Discount Act, those who stand in opposition to the measure say that it will actually likely increase the state's uninsured motorist issues. The extra surcharges allowed to be charged by insurers for coverage lapses due to non-payment may force many drivers struggling economically to drive without insurance. The initiative could allow auto insurance providers to disallow continuous coverage discounts even for drivers who miss just one payment due to financial troubles, according to those wary of the proposed measure. On top of that, the lack of distinction for those who simply choose not to drive at all due to injury, economic necessity or some other reason makes potential passage especially troublesome.

According to the consumer group Consumer Watchdog, Mercury Insurance poured two million dollars into CAL-FAIR, the group it set up to lobby for passage of the Continuous Coverage Auto Insurance Discount Act. As CAL-FAIR works to gather signatures in anticipation of placing the measure on the June ballot, the group's goal is to get 700,000 people to sign the initiative, with 433,971 valid signatures being required to get on the ballot [2].

Insurance Discount Act Double-Sided

Depending on a California driver's perspective, the passage of the Continuous Coverage Auto Insurance Discount Act could represent a boon or a roadblock to recovery financially. Those who have remained in state and have been in a financial position to keep their insurance coverage active throughout the years will certainly find, at least in the short-term, that the modification of Proposition 103 benefits them by allowing them to take their loyalty discounts with them. Still, the long-range economic effect for this group of California drivers remains unclear. It is easy to see the way it will provide them with at least one immediate advantage, but perhaps a bit more difficult to ascertain how the legislative change would affect their wallets down the road. The danger of increased uninsured motorist rates is certainly a legitimate one, but whether these possible increases would offset short-term savings is uncertain at best.

Even so, the Continuous Coverage Auto Insurance Discount Act figures to work against the efforts of various groups in California struggling to maintain proper auto insurance coverage, as well as those who for one reason or another choose to forego driving in state completely. For this broad demographic of the overall California driving population, the fiscal consequences of inclusion on the June ballot and successful passage are more predictable and more clearly negative in nature. The official language of the title and summary of the act submitted to the state of California indicate that the determination of a lack of qualification for discounts (and analogously, the possibility for surcharges) rests on auto coverage lapses due to non-payment of premiums [2].

A more thorough clarification of this provision is probably necessary for a clearer understanding of the situations which would result in a surcharge. For example, does non-payment encompass only policies which have been lapsed as a result of the policy holder's inability to keep up with payments, or does it include a policy holder letting a policy expire and not renewing it or canceling it due to changing circumstances eliminating the necessity for coverage, such as a move overseas or a decision to simply stop driving for a while and sell a vehicle? Clearly, different groups are interpreting the potential effects of passage differently, so a more uniform explanation of the initiative is needed.